magicJack Reports Third Quarter 2013 Financial Results

magicJack Reports Third Quarter 2013 Financial Results

  *Total net revenues of $35.5 million
  *Access rights renewal revenues were $14.6 million, up 34% year-over-year
  *GAAP operating income of $12.7 million, adjusted EBITDA of $14.8 million
  *GAAP diluted EPS of $0.48, non-GAAP diluted EPS of $0.75
  *Seventh consecutive quarter of GAAP profitability
  *Generated $10.4 million in operating cash flow during Q3
  *Cash and cash equivalents of $53.0 million and no debt
  *Activations totaled 273,534 subscribers, a 21% quarter over quarter
    increase

WEST PALM BEACH, Fla. and JERUSALEM, Nov. 12, 2013 (GLOBE NEWSWIRE) --
magicJack VocalTec Ltd. (Nasdaq:CALL), a leading cloud communications company,
today announced financial results for the third quarter ended September 30,
2013.

"Our business continued to generate strong operating cash flow during the
third quarter. We were pleased with the ongoing market response of the New
magicJack Plus and our ability to increase activations by 21%
quarter-over-quarter," said magicJack VocalTec President and CEO Gerald Vento.
"We expect to achieve double digit revenue growth in 2014 driven by our brand
refresh including new packaging and TV campaigns, an updated website, and
expanded retail and digital distribution channels. Our strong balance sheet,
nationally recognized brand, established customer base, high visibility
distribution channels and low cost technology platform position us well for
the next phase of growth."

Third Quarter 2013 Financial Highlights:

  *Net revenues: Total net revenues were $35.5 million. Net revenues from the
    sales of magicJack and magicJack PLUS were $13.2 million and access rights
    renewal revenues were $14.6 million, an increase of 34% on a
    year-over-year basis, and accounted for 41% of total net revenues. Prepaid
    minute revenues were $3.2 million and access and wholesale charges were
    $1.4 million during the quarter. Other revenue contributed the remaining
    $3.2 million of total net revenues during the third quarter of 2013.
  *Operating income: GAAP operating income for the third quarter of 2013 was
    $12.7 million, compared to $11.2 million for the third quarter of 2012.
  *Adjusted EBITDA: Adjusted EBITDA was $14.8 million for the third quarter
    of 2013 compared to $14.0 million for the third quarter of 2012.
  *Net income: GAAP net income for the third quarter of 2013 was $8.9
    million, compared to $15.1 million for the same period last year. GAAP
    diluted income per share for the third quarter was $0.48, based on 18.6
    million weighted-average diluted shares outstanding, compared to $0.77,
    based on 19.5 million weighted-average diluted shares outstanding, for the
    same period last year. GAAP net income during the third quarter of 2013
    includes $3.7 million in tax expense compared to $29,000 during the third
    quarter of 2012, which reflects the company's current projected effective
    2013 tax rate of approximately 32.9%.
  *Non-GAAP net income: Non-GAAP net income for the third quarter of 2013 was
    $13.9 million, compared to $13.1 million for the third quarter of 2012.
    Non-GAAP net income per diluted share for the third quarter was $0.75,
    based on 18.6 million weighted-average diluted shares outstanding,
    compared to $0.67 per diluted share, based on 19.5 million
    weighted-average diluted shares outstanding, for the same period last
    year.
  *Cash and operating cash flow: As of September 30, 2013, magicJack VocalTec
    had cash and cash equivalents of $53.0 million. During the third quarter
    of 2013, the Company generated $10.4 million in free cash flow, an
    increase of 24% compared to $8.4 million during the third quarter of 2012.

A reconciliation of GAAP to non-GAAP financial measures, as well as the
calculation of free cash flow has been provided in the financial statement
tables included in this press release. An explanation of these measures is
also included below under the heading "Non-GAAP Financial Measures."

FY 2013 Financial Guidance:

As of November 12, 2013, magicJack is providing the following guidance for the
full-year 2013:

  *Net revenues: Total net revenues for the full year 2013 are projected to
    be in the range of $140 and $142 million.
  *Adjusted EBITDA: Adjusted EBITDA for the full year 2013 is expected
    tocome in at the high end of the range of previously issued guidance of
    $52to $55 million. 
  *Effective tax rate: For the full year 2013 the effective tax rate is
    expected to be approximately 32.9%.

Additional Third Quarter 2013 and Recent Highlights:

  *magicJack activated 273,534 subscribers during the third quarter of 2013,
    an increase of approximately 21% compared to the second quarter of 2013.
    Activations are defined as devices that become activated on to a
    subscription contract during a given period.
  *As of September 30, 2013, magicJack had an estimated 3.30 million active
    MJ subscribers, which we define as users of MJ or MJP that are under an
    active subscription contract.
  *magicJack's magicJack APP had 5.61 million registered APP users as of
    September 30, 2013.
  *In November 2013, repurchased in a privately negotiated transaction
    1,062,092 of the Company's ordinary shares at $12.24 per share, for an
    aggregate purchase price of approximately $13 million.

Quarterly Conference Call:

magicJack VocalTec will host a conference call today at 5:00 p.m. EST to
review the company's financial results for the third quarter 2013. To access
this call, dial 1-800-289-0487 (United States), or 1-913-312-0636
(international), with conference ID #1881136. A live webcast of the conference
call will be accessible from the investor relations page of magicJack
VocalTec's website at http://www.vocaltec.com and a recording will be archived
and accessible at http://www.vocaltec.com/events.cfm.A recording of this
conference call will also be available through November 26, 2013, by dialing
1-877-870-5176 (United States), or 1-858-384-5517 (international). The
recording access code is #1881136.

About magicJack VocalTec Ltd.

magicJack VocalTec Ltd. (Nasdaq:CALL), the inventor of the magicJack, is a
leading cloud communications company. The Company has sold more than 10
million of the easy-to-use, award-winning magicJack since the device's launch
in 2007, and has the use of more than 30 patents. It is the largest-reaching
CLEC (Competitive Local Exchange Carrier) in the United States in terms of
area codes available and certification in number of states, and the network
has historically had uptime of over 99.99 percent.

Non-GAAP Measures

The non-GAAP measures shown in this release exclude various items detailed
further below.

magicJack defines Non-GAAP net revenues as GAAP net revenues excluding: a gain
in operational change related to prepaid minutes, a gain in adjustment for a
favorable settlement with a retail sales broker, transition costs related to
introduction of New magicJack Plus, and certain tax matters. magicJack defines
adjusted EBITDA as GAAP operating income excluding: depreciation and
amortization, share-based issuances, a gain in adjustment for operational
change related to prepaid minutes, a gain in adjustment for a favorable
settlement with a retail sales broker, transition costs related to
introduction of New magicJack Plus, former executive severance payments, and
certain tax matters. magicJack defines non-GAAP net income as GAAP net income
excluding: share-based issuances, a gain in adjustment for operational change
related to prepaid minutes, a gain in adjustment for a favorable settlement
with a retail sales broker, transition costs related to introduction of New
magicJack Plus, former executive severance payments, and certain tax matters,
a change in gain on investments, a change in fair value loss (gain) on common
equity put options, and income tax expense. magicJack defines free cash flow
as net cash provided by operating activities minus capital expenditures.
Reconciliations of these non-GAAP measures to the most directly comparable
GAAP measures are included with the financial information included in this
press release. These measures are not in accordance with, or an alternative
for, GAAP and may be different from non-GAAP measures used by other companies.
Management believes that the presentation of non-GAAP results, when shown in
conjunction with corresponding GAAP measures, provides useful information to
management and investors regarding financial and business trends related to
the company's results of operations. Further, management believes that these
non-GAAP measures improve management's and investors' ability to compare the
company's financial performance with other companies in the technology
industry. Because these items vary significantly between companies, it is
useful to compare results excluding these amounts as identified below.

Forward Looking Statements

This press release contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than statements of
historical facts, contained in this press release, including statements about
our projected revenues, income, cash flows, strategy, future operations, new
product introductions and customer acceptance, future financial position,
future revenues, projected costs, prospects, plans and objectives of
management, are forward-looking statements. Many factors could cause our
actual results, performance or achievements to be materially different from
any future results, performance or achievements that may be expressed or
implied by such forward-looking statements. These factors include, among other
things: changes to our business resulting from increased competition; any
operational or cultural difficulties associated with the continuing
integration of the businesses of VocalTec and YMax; potential adverse
reactions or changes to business relationships resulting from the completion
of the merger; unexpected costs, charges or expenses resulting from the
merger; the ability of the combined Company to achieve the estimated potential
synergies or the longer time it may take, and increased costs required, to
achieve those synergies; our ability to develop, introduce and market
innovative products, services and applications; our customer turnover rate and
our customer acceptance rate; changes in general economic, business, political
and regulatory conditions; availability and costs associated with operating
our network; potential liability resulting from pending or future litigation,
or from changes in the laws, regulations or policies; the degree of legal
protection afforded to our products; changes in the composition or
restructuring of us or our subsidiaries and the successful completion of
acquisitions, divestitures and joint venture activities; and the various other
factors discussed in the "Risk Factors" section of our Annual Report on Form
10-K and other filings with the Securities and Exchange Commission. Such
factors, among others, could have a material adverse effect upon our business,
results of operations and financial condition. We do not assume any obligation
to update any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.

magicJack^® is a registered trademark of magicJack VocalTec Ltd. All other
product or company names mentioned are the property of their respective
owners.

Third quarter 2013 financial tables follow:

                                                               
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                               
(In thousands except per share                                  
data)
(Unaudited)                        Quarter   Quarter   Nine Months Nine Months
                                  Ended     Ended     Ended       Ended
                                  30-Sep-13 30-Sep-12 30-Sep-13   30-Sep-12
Net revenues                       35,533   $40,789 105,312    $116,935
Cost of revenues                   12,134   16,746    35,333     47,365
Gross profit                       23,399    24,043    69,979      69,570
Operating expenses:                                             
Advertising                        2,866    4,892     8,437      19,336
General and administrative         6,892    7,373     20,386     21,079
Research and development           990      592       3,626      1,820
Total operating expenses           10,748    12,857    32,449      42,235
Operating income                   12,651   11,186   37,530     27,335
Other income (expense):                                         
Gain on investments                --      508      722        1,340
Interest and dividend income       45       86       275        538
Interest expense                   (65)     (94)     (242)      (318)
Fair value gain (loss) on common   --      3,449    (1,047)    4,734
equity put options
Other income, net                  15       10       16         31
Total other (expense) income       (5)      3,959    (276)      6,325
Income before income taxes         12,646   15,145   37,254     33,660
Income tax expense                 3,743    29       12,257     78
Net income                         $8,903  $15,116 $24,997   $33,582
                                                               
Income per ordinary share:                                      
Basic                              $0.48   $0.78   $1.34     $1.66
Diluted                            $0.48   $0.77   $1.34     $1.64
Weighted average ordinary shares                                
outstanding:
Basic                              18,552   19,407   18,596     20,234
Diluted                            18,560   19,507   18,604     20,447
                                                               

                                                                  
CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION
                                                                  
(In thousands)
(Unaudited)
                                                        As of      As of
ASSETS                                                   30-Sep-13  31-Dec-12
Current Assets                                                     
Cash and cash equivalents                                $53,017  $18,959
Marketable securities, at fair value                     7,151      19,390
Accounts receivable, net of allowance for doubtful       4,189     6,004
accounts and billing adjustments
Inventories                                              4,565      5,340
Deferred costs                                           7,217      7,066
Deferred tax assets, current                             1,843      1,114
Prepaid income taxes                                     --        98
Deposits and other current assets                        1,378      1,313
Total current assets                                     79,360     59,284
                                                                  
Property and equipment, net                              2,073      2,348
Intangible assets, net                                   13,116     16,136
Goodwill                                                 32,304     32,304
Deferred tax assets, non-current                         9,831      9,831
Deposits and other non-current assets                    685        864
Total Assets                                             $137,369 $120,767
                                                                  
LIABILITIES AND CAPITAL DEFICIT                                    
Current Liabilities                                                
Accounts payable                                         $3,363   $3,651
Accrued expenses and other current liabilities           9,482      13,569
Deferred revenue, current portion                        65,367     67,038
Total current liabilities                                78,212     84,258
                                                                  
Deferred revenue, net of current portion                 57,489     58,165
Other non-current liabilities                            2,674      3,114
Total Capital Deficit                                    (1,006)    (24,770)
Total Liabilities and Capital Deficit                    $137,369 $120,767
                                                                  

                                                                 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                 
(In thousands)
(Unaudited)                                            Nine Months Nine Months
                                                      Ended       Ended
                                                      30-Sep-13   30-Sep-12
Cash flows from operating activities:                             
Net income                                             $24,997   $33,582
Provision (recovery) for doubtful accounts and billing (3,827)    6,042
adjustments
Share-based issuances                                  1,631      2,253
Depreciation and amortization                          3,496      2,140
Deferred income tax provision                          70         71
Interest expense - non-cash                            242        318
Gain on investments                                    (722)      (1,340)
Fair value loss (gain) on common equity put options    1,047      (4,734)
Contributed services                                   --         60
Changes in operating assets and liabilities            1,907      6,080
Net cash provided by operating activities              28,841     44,472
Cash flows from investing activities:                             
Purchases of investments                               --         (77,365)
Proceeds from sales of investments                     12,622     92,140
Purchases of property and equipment                    (84)       (217)
Acquisition of intangible assets                       (117)      (5,732)
Net cash provided by investing activities              12,421     8,826
Cash flows from financing activities:                             
Purchase of treasury stock                             (5,704)    (52,308)
Proceeds from sale of common equity put options        --         11,722
Proceeds from exercise of ordinary share options       --         1,210
Payment of other non-current liabilities               (1,500)    (1,500)
Net cash used in financing activities                  (7,204)    (40,876)
                                                                 
Net increase in cash and cash equivalents              34,058     12,422
Cash and cash equivalents, beginning of period         18,959     12,961
Cash and cash equivalents, end of period               $53,017   $25,383
                                                                 
                                                                 

                                                                 
RECONCILIATION OF NET REVENUES TO ADJUSTED NET REVENUES
                                                                 
(In thousands)                                                    
(Unaudited)                           Quarter   Quarter   Nine       Nine
                                                          Months     Months
                                     Ended     Ended     Ended      Ended
                                     30-Sep-13 30-Sep-12 30-Sep-13  30-Sep-12
Net revenues                          $35,533 $40,789 $105,312 $116,935
Operational change related to prepaid --       --       --        (2,998)
minutes
Favorable settlement with a retail    --       --       (1,192)   --
sales broker
Transition costs related to           --       --       1,200     --
introduction of New magicJack Plus
Certain tax matters                   --       --       750       --
Non-GAAP net revenues                 $35,533 $40,789 $106,070 $113,937
                                                                 
                                                                 
RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA
                                                                 
(In thousands)                                                    
(Unaudited)                           Quarter   Quarter   Nine       Nine
                                                          Months     Months
                                     Ended     Ended     Ended      Ended
                                     30-Sep-13 30-Sep-12 30-Sep-13  30-Sep-12
GAAP Operating income                 $12,651 $11,186 $37,530  $27,335
Depreciation and amortization         965      890      3,496     2,140
Share-based issuances                 1,231    1,881    1,631     2,253
Operational change related to prepaid --       --       --        (2,998)
minutes
Favorable settlement with a retail    --       --       (1,192)   --
sales broker
Transition costs related to           --       --       1,200     --
introduction of New magicJack Plus
Former executive severance payments   --       --       798       --
Certain tax matters                   --       --       750       --
Adjusted EBITDA                       $14,847 $13,957 $44,213  $28,730
                                                                 
                                                                 
RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME
                                                                 
(In thousands)                                                    
(Unaudited)                           Quarter   Quarter   Nine       Nine
                                                          Months     Months
                                     Ended     Ended     Ended      Ended
                                     30-Sep-13 30-Sep-12 30-Sep-13  30-Sep-12
GAAP Net income                       $8,903  $15,116 $24,997  $33,582
Share-based issuances                 1,231    1,881    1,631     2,253
Operational change related to prepaid --       --       --        (2,998)
minutes
Favorable settlement with a retail    --       --       (1,192)   --
sales broker
Transition costs related to           --       --       1,200     --
introduction of New magicJack Plus
Former executive severance payments   --       --       798       --
Certain tax matters                   --       --       750       --
Gain on investments                   --       (508)    (722)     (1,340)
Fair value loss (gain) on common      --       (3,449)  1,047     (4,734)
equity put options
Income tax expense                    3,743    29       12,257    78
Non-GAAP Net income                   $13,877 $13,069 $40,766  $26,841
                                                                 
                                                                 
GAAP Net income per share – Diluted   $0.48   $0.77   $1.34    $1.64
Share-based issuances                 0.07     0.10     0.09      0.11
Operational change related to prepaid --       --       --        (0.15)
minutes
Favorable settlement with a retail    --       --       (0.06)    --
sales broker
Transition costs related to           --       --       0.06      --
introduction of New magicJack Plus
Former executive severance payments   --       --       0.04      --
Certain tax matters                   --       --       0.04      --
Gain on investments                   --       (0.03)   (0.04)    (0.07)
Fair value loss (gain) on common      --       (0.18)   0.06      (0.23)
equity put options
Income tax expense                    0.20     0.00     0.66      0.00
Non-GAAP Net income per share –       $0.75   $0.67   $2.19    $1.31
Diluted
                                                                 
Weighted average ordinary shares      18,560    19,507    18,604     20,447
outstanding:Diluted
                                                                 
                                                                 
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
                                                                 
(In thousands)                                                    
(Unaudited)                           Quarter   Quarter   Nine       Nine
                                                          Months     Months
                                     Ended     Ended     Ended      Ended
                                     30-Sep-13 30-Sep-12 30-Sep-13  30-Sep-12
Net cash provided by operating        $10,392 $8,352  $28,841  $44,472
activities
Less: Capital expenditures            --       --       (84)      (217)
Free cash flow                        $10,392 $8,352  $28,757  $44,255
                                                                 

CONTACT: Seth Potter
         Investor Relations
         561-749-2255
         ir@vocaltec.com

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